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Opinions

The Southern District of Illinois offers a database of opinions. These opinions were entered between the period of 2/1987 and the present. To conduct a detailed search, enter a keyword or case number in the search box to the right.

Summary: The trustee moved for turnover of all indicia of debtor Jerry Johnson’s fractional “working interest” in an oil well, and of all revenue received by Jerry Johnson from that oil well since the commencement of the chapter 7 case. The trustee argued that, under Illinois law, the “working interest” was an interest in realty and that the revenue earned from sale of the oil were proceeds of that freehold estate. The debtors opposed the motion on the basis that Jerry Johnson had only a contractual right to payment under the oil and gas assignment, with the result that the revenue was excluded from the bankruptcy estate as income. The Court concluded that the “working interest” was not an interest in real estate but was a personal property interest that included both the oil extracted pre-petition and Jerry Johnson’s contractual rights to profits earned post-petition. The Court also held that because the revenue did not arise from personal services performed by the debtors post-petition, it was not excluded from the bankruptcy estate under § 541(a)(6).

The trustee also moved for turnover of a trust of which Jerry Johnson was the settlor, the trustee and a beneficiary with retained powers to amend or revoke the trust and to use the profits and/or principal of the trust without restriction. The Court held that the trustee assumed these powers upon commencement of the case and could use them for the benefit of the bankruptcy estate. The Court held further that the trust corpus was not excluded from property of the estate under § 541(b)(1) because Jerry Johnson’s powers under the trust were not for the exclusive benefit of a non-debtor. The Court also rejected the debtors’ argument that equitable considerations should prevail in deciding the issues raised.

Summary: The debtors/plaintiffs moved for default judgment on a complaint to avoid the defendant's lien on their residence. They relied on 11 U.S.C. § 506(a)(1) and argued that, because there was no value in the property for the lien to attach to, it was totally unsecured and could therefore be avoided. The Court asked the plaintiffs to brief the matter given the Seventh Circuit's decision in In re Ryan, 725 F.3d 623 (2013), which extended In re Dewsnup, 502 U.S. 410 (1992) to Chapter 13. The Court found that the plaintiffs’ reliance on § 506(a)(1) was misplaced. The Court further found that the lien could be avoided pursuant to 11 U.S.C. § 506(d) because the claim was not an allowed secured claim. (In the underlying bankruptcy case, the debtors objected to the defendant's claim on the basis that the claim had been fully satisfied through a HAMP mortgage refinancing. The objection was sustained and the claim was disallowed.) Default judgment was granted.

Summary: The United States Trustee filed a motion for sanctions and contempt against Wendell Taylor, a bankruptcy petition preparer. After an evidentiary hearing, the Court found that Mr. Taylor had violated the terms of a prior Consent Judgment entered in a separate bankruptcy case, as well as various provisions of section 110 of the Bankruptcy Code. The Court granted the motion in part and entered statutory fines against Mr. Taylor. The Court denied the United States Trustee’s request to certify the case to District Court for possible criminal contempt proceedings.

Summary: Ernest Bingman published a magazine called Angus Topics, Inc., the Debtor in this case. When the magazine began losing money, Bingman formed a new company to publish a new magazine. Angus Topics, Inc. later filed a chapter 7 case and the Trustee filed a complaint against Bingman, the new publisher and the new magazine to avoid fraudulent transfers under 11 U.S.C. §§ 548(a)(1)(A) and (B) and 550. The Trustee alleged that the defendants transferred to themselves funds that should have been deposited into the Debtor’s account, and used the Debtor’s tangible assets for their benefit. She further alleged that the defendants transferred the Debtor’s accounts receivable, subscriber list, advertiser list and good will. At trial, the Trustee failed to prove that a transfer occurred and failed to prove that the assets which were allegedly transferred had any value.

Summary: A bank sought relief from the automatic stay to proceed with collection of its nondischargeable judgment against the debtor while his chapter 13 case was pending. The bank contended that the debtor's plan of reorganization did not provide for payment of the debt, thus depriving the bank of adequate protection and giving cause to grant relief from the automatic stay. The Court held that the bank, as a general unsecured creditor, had not presented a prima facie case showing that it was entitled to relief from the automatic stay. Because 11 U.S.C. §§362(d)(1) and 361 provide for adequate protection of a creditor's "interest in property," adequate protection is not available to unsecured creditors. With no "interest in property" deserving of adequate protection, there was no merit in the bank's contention that lack of adequate protection justified lifting the automatic stay on its behalf. The Court also rejected the bank's argument that its nondischargeable debt entitled it to different and better treatment than the other general unsecured creditors who were receiving $0.00 under the plan.

Summary: The debtor claimed a valuable copy of the Book of Mormon as an exempt bible pursuant to the Illinois exemption statute, 735 ILCS 5/12-1001(a). This section allows for the exemption of a debtor’s necessary wearing apparel, bible, school books, and family photos. Debtor possessed other bibles as well. The Trustee argued that allowing the exemption of the valuable book would violate the purpose and intent of the statute.

After examining the relevant case law, as well as the context of the statute’s language, the Court sustained the Trustee’s objection. The Illinois exemption statute was passed, at least in part, with the intent to protect the bare necessities of a debtor. A bible was included in the exemption statute to protect the debtor’s daily devotional aid. The exemption of the rare and valuable book failed to fulfill the intent of the legislature or purpose of the statute.

Summary: Trustee objected to debtor's claim of homestead exemption in proceeds from sale of real property not disclosed on original schedules. Trustee objected that exemption was claimed in bad faith. Debtor waited two years to disclose interest in property. Debtor claimed that he was not aware he held an interest in the property. Testimony at trial indicated that debtor had extensive experience in title companies and banking. The Court found that the Trustee presented clear and convincing evidence of bad faith, given the debtor's experience with real property. The debtor also would have received a check with his name on it from the proceeds, further indicating his awareness that he held an interest in the property. The objection was sustained.

Summary: Debtor filed an adversary complaint against the Social Security Administration (“SSA”) alleging that SSA wrongfully withheld a portion of the debtor’s social security disability benefits, thereby violating the automatic stay and discharge injunction. Debtor argued that any right of SSA to offset post-petition was discharged by the debtor’s bankruptcy filing. SSA countered that its offset, or reduction, of disability benefits was not an attempt to recover a debt or overpayment, but instead, was a statutorily-required offset based on the debtor’s receipt of workers’ compensation benefits. The Court granted summary judgment in favor of SSA.

Summary: The debtor, Advance Iron Works, Inc., an Illinois corporation, filed a chapter 11 case in the Bankruptcy Court, Northern District of Illinois, Eastern Division (the home court). Prior to its bankruptcy filing, the debtor entered into a contract with Contegra Construction Co., LLC obligating the debtor to fabricate steel for a construction project Contegra was managing in Belleville, Illinois. A dispute erupted between Contegra and the debtor. This dispute resulted in Contegra filing two lawsuits against the debtor. A third lawsuit, brought against the debtor's officer and majority shareholder, Robert V. Sutphen, in the Circuit Court for the Third Judicial Circuit, Madison County, in Edwardsville, Illinois, is the focus of this opinion. With the bankruptcy case still pending in the home court, the debtor alone removed the Madison County litigation to this Court (the conduit court) pursuant to 28 U.S.C. § 1452(a). Thereafter, both the debtor and the defendant, Robert V. Sutphen, asked that the lawsuit be transferred to the home bankruptcy court pursuant to 28 U.S.C. § 1412. Contegra opposed the removal and the transfer request and sought dismissal and remand to Madison County pursuant to 28 U.S.C. § 1452(b).

This Court determined that the removal by the debtor, who was a non-party to the Madison County lawsuit, was procedurally defective under the express language of 28 U.S.C. § 1452(a) which vests the right to remove exclusively in a "party" to the litigation. A non-party or "real party in interest" could not avail itself of the removal statute and the debtor had not sought to intervene in the litigation. Robert V. Sutphen's later "consent" to the removal was held to be both ineffective and untimely.

This Court also rejected the argument that "automatic transfer" was appropriate under the facts of this case. A conduit court that is simultaneously presented with a motion to transfer an action removed to it and a motion to remand the action, may "automatically transfer" the action to the home bankruptcy court for the decision of whether to remand. However, the procedurally defective removal in the instant case left remand by the conduit court as the sole option.

Finally, this Court held that, as a result of the remand to Madison County, it was not the proper forum to decide if the litigation against Robert V. Sutphen was barred by the automatic stay of 11 U.S.C. § 362 protecting the debtor in its chapter 11 case. The debtor was able to pursue that question in the home bankruptcy court.

Summary: This case involved three issues: (1) whether notice of a proposed abandonment of property must be given to all creditors; (2) whether statements regarding the validity of a lien made by a Chapter 11 debtor-in-possession in an order conditioning use of cash collateral are binding on a subsequent Chapter 7 Trustee seeking to avoid the lien pursuant to 11 U.S.C. § 544(a)(3); and (3) whether a mortgage that fails to recite the interest rate and maturity date of the underlying indebtedness is sufficient to impart constructive notice of an interest in property to a subsequent bona fide purchaser.

As to the issue of abandonment, the Court held that the express language of Rules 6007(a) and (b) and §§ 554(a) and (b) of the Bankruptcy Code requires that all creditors receive notice of proposed abandonment, regardless of whether the abandonment was sought by a trustee, a debtor in possession, or a creditor. In addition the Court acknowledged that generally, orders granting abandonment are considered irrevocable. However, irrevocability of an abandonment order is predicated on the assumption that the abandonment was properly granted in the first place. Where notice is not given to all creditors, a proposed abandonment is ineffective.

The Court rejected the defendant’s assertion that the debtor in possession had waived the estate’s right to challenge the validity of the mortgage lien. The Court reasoned that a determination in a cash collateral order that a lien is valid is not equivalent to a determination that such lien may not be avoided in subsequent litigation.

As to the complaint to avoid the mortgage pursuant to § 544(a)(3), the Court rejected the Trustee’s argument and granted the defendant’s motion to dismiss. The Court determined that the language of § 11 of the Conveyances Act is permissive rather than mandatory and that the failure to include the interest rate and maturity date of the note was not necessarily fatal to the mortgage. Instead, the Court looked at the quantum of information that was provided and determined that it was sufficient to apprise the Trustee of the defendant’s interest. The Court further reasoned that even if state law required a mortgage to include the interest rate and maturity date, this information was incorporated by reference to the underlying note.

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